Asia Pacific private equity deal value plunged 44% year-on-year to US$198 billion in 2022, ending two years of record dealmaking, said Bain & Company recently when releasing its Asia Pacific Private Equity Report 2023.
Slower economic growth, declining consumer confidence, falling manufacturing output, high inflation, and mounting global and regional uncertainties resulted in a perfect storm which dampened investor sentiment, the firm noted.
“In all markets where buyouts dominate, the rising cost of deal financing was a key factor depressing the number of buyouts as central banks tightened credit, interest rates rose, and liquidity shrank,” said Tom Kidd, Bain & Company partner and co-author of the report, based in Singapore.
- Across the region, deal value declined between 25% and 53%.
- Greater China and Southeast Asia saw the greatest fall at 53% and 52%, respectively, with the former challenged by uncertainties relating to the zero-Covid policy, geopolitical tensions and tech regulatory crackdowns, and the latter faced with fewer growth deals.
- Deal value in Australia-New Zealand (ANZ), Korea and Japan dropped 48%, 39% and 28%, respectively. Deal value in India declined 25%.
- Greater China continues to hold the lion’s share of Asia Pacific private equity deal value although it plummeted to 31%, a 9-year low.
- India and ANZ increased their shares to 23% and 19%, respectively.
- When it comes to deal type, growth deals continued to outpace buyouts in 2022, producing 54% of deal value, up from 50% in 2021.
- However, the total value of large growth deals above $200 million fell 45% in 2022 compared with the previous year.
- Investors’ shrinking appetite for risk and the dramatic drop in the value of technology companies on stock markets contributed to this trend.
- Growth deals dominate most of Asia Pacific’s markets except for ANZ and Japan, where investors favour buyout deals.
- Carve-outs were again an important buyout theme in 2022, especially in Japan and Korea where a challenging economic environment prompted conglomerates to focus on their core businesses and sell non-core operations.
- An uncertain business outlook and lower ratings for public companies helped push valuations down to 12x from 13.1x (median EV/EBITDA) a year earlier.
- Similarly, tough market conditions pushed some investors to the sidelines in 2022.
- The number of active investors in Asia Pacific fell 2% year-on-year, the first drop since 2015.
- The top 20 funds accounted for close to a third of the Asia Pacific private equity deal value.
- Following a record year for exits in 2021, exit value fell 33% year-on-year to $132 billion. Three key factors deterred general partners (GPs) from selling: a significant re-rating of public market valuations, fewer avenues for exits given the decline in IPOs, and deteriorating portfolio performance.
- In a similar fashion, fundraising in Asia Pacific declined 43% to $105 billion in 2022, 70% below its 2016 peak.
- The share of Asia Pacific-focused funds dropped to 10% of global PE closed funds in 2022 compared with 16% a year earlier.
- On average, GPs needed more time to close new funds.
- The internet and tech sector continue to hold the largest share of private equity capital in the Asia Pacific region, however, its share of deal value dipped to 33% in 2022, down from 41% in the previous year.
- The decline was primarily due to fewer and smaller deals in China and India.
- Advanced manufacturing and energy and resources sectors, on the other hand, recorded an increase in the number of deals in 2022, a reflection of investors’ preference for companies with a low-risk profile that generate steady cash flow.
- At the same time, government demand for private capital investment to develop and upgrade critical infrastructure including utilities, telecoms and transportation remains strong, especially in Southeast Asia and India.
- Investments in utilities and renewables made up 60% of deal value in the energy and resources sector, reflecting the rise of environmental, social and governance (ESG) considerations as an investment priority.